Question
Mandrake Motorcycles - Balance Sheets 31-Dec-15 31-Dec-14 Assets Current assets: Cash and cash equivalents $ 240,000 $ 425,000 Accounts receivable $ 185,000 $ 200,000 Inventory
Mandrake Motorcycles - Balance Sheets
31-Dec-15 | 31-Dec-14 | |
Assets | ||
Current assets: | ||
Cash and cash equivalents | $ 240,000 | $ 425,000 |
Accounts receivable | $ 185,000 | $ 200,000 |
Inventory | $ 850,000 | $ 630,000 |
Other current assets | $ 200,000 | $ 210,000 |
Total current assets | $ 1,475,000 | $ 1,465,000 |
Property, plant and equipment, net | $ 1,075,000 | $ 1,175,000 |
Total assets | $ 2,550,000 | $ 2,640,000 |
Liabilities | ||
Current liabilities: | ||
Accounts payable | $ 260,000 | $ 205,000 |
Short term debt payable | $ 370,000 | $ 320,000 |
Other current liabilities | $ 285,000 | $ 280,000 |
Total current liabilities | $ 915,000 | $ 805,000 |
Long term debt | $ 195,000 | $ 410,000 |
Total liabilities | $ 1,110,000 | $ 1,215,000 |
Stockholders equity: | ||
Common stock | $ 1,325,000 | $ 1,325,000 |
Retained earnings | $ 115,000 | $ 100,000 |
Total stockholders equity | $ 1,440,000 | $ 1,425,000 |
Total liabilities and stockholders equity | $ 2,550,000 | $ 2,640,000 |
Mandrake Motorcycles - Income Statements | ||
Year End 12/31/1 | Year End 12/31/14 | |
Nets sales | $ 1,590,000 | $ 1,690,000 |
Cost of goods sold | $ 980,000 | $ 1,175,000 |
Gross margin | $ 610,000 | $ 515,000 |
Operating expenses: | ||
Selling expenses | $ 300,000 | $ 210,000 |
General and administrative expenses | $ 210,000 | $ 200,000 |
Total operating expenses | $ 510,000 | $ 410,000 |
Operating income | $ 100,000 | $ 105,000 |
Interest expense | $ 48,000 | $ 72,000 |
Income before taxes | $ 52,000 | $ 33,000 |
Income taxes | $ 18,200 | $ 11,550 |
Net income | $ 33,800 | $ 21,450 |
Problem 14-10. Marty Monk Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles, and offered the opportunity to be the sole distributor of Mandrake bikes in the state. Acceptance of the offer will require Monk to open a dedicated Mandrake showroom and repair facility and, obviously, stock Mandrake cycles and parts. Monk is quite impressed by the Mandrake product, but before making a major investment, he wants to be confident that the company will be around for the long haul. Accordingly, he has asked you to analyze the audited financial statements of Mandrake for the previous two years. | |
Required a. Prepare a horizontal and a vertical analysis of the 2015 and 2014 financial statements. | |
b. Calculate the following ratios for 2015 and 2014: return on assets, gross margin percentage, receivables turnover, days sales in receivables, inventory turnover, days sales in inventory, debt to equity, and times interest earned. | |
c. Based on your analysis in parts a and b, comment on any matters that Monk should probe in an upcoming meeting with Bob Sherman from Mandrake. | |
Problem 14-11. Additional Information Related to Problem 14-10. In 2016, Mandrake Motorcycles declared bankruptcy. Subsequently, it was determined that in fiscal 2015, the company produced more units than needed to fill pending orders. The result was a substan- tial decrease in production cost per unit. The company uses the LIFO inventory method.
Required Discuss how (or if) this information is consistent with the results of the analysis conducted in Problem 14-10, parts a and b.
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